the total amount to
be paid back including the amount borrow and the amount of interest paid over the term of the
bond.

27.

The maturity of a bond is:

a.

the amount of interest paid each period.

b.

the amount
borrowed.

c.

the amount of interest paid over the term of the bond.

d.

the time at which
the lender must be paid back.

28.

If the principal of a bond is $100, it matures in a year and the interest rate
is 4%, then at the interest payment on this bond will be:

a.

$100.

b.

$96.

c.

$4.

d.

$400.

29.

If the principal of a bond is $1000, it matures in a year and the interest rate
is 6%, then at the end of the year the lender will receive:

a.

$1000.

b.

$1060.

c.

$60.

d.

$940.

30.

In the market clearing model, for the whole economy interest income is:

a.

bonds minus the interest rate.

b.

zero.

c.

the interest rate
divided by bonds.

d.

bonds divided by the interest
rate.

31.

Individual household nominal income includes:

a.

nominal interest income, iB.

b.

nominal net rental income, [(R/P) - PK]•PK.

c.

nominal wage income, wL.

d.

all of the
above.

32.

In the model the nominal interest rate equals the nominal net return on capital,
i = (R/P) - , because:

a.

other than rates of return bonds and capital look the same to households as
assets.

b.

capital is riskier than bonds.

c.

bonds are riskier than
capital.

d.

bonds are zero in the aggregate.

33.

In the model the nominal interest rate equals the nominal net return on capital,
i = (R/P) - , because:

a.

bonds are zero in the aggregate.

b.

capital is riskier than
bonds.

c.

bonds are riskier than capital.

d.

if bonds offered a higher return than capital
households would hold no capital.

34.

According to the household nominal budget constraint, , households can
use their income to:

a.

purchase consumption goods.

b.

acquire more bonds.

c.

purchase capital
goods.

d.

all of the above.

35.

Interest income is:

a.

positive for net bond holders.

b.

zero for the whole economy.

c.

negative for net
bond issuers.

d.

all of the above.

36.

According to the household nominal budget constraint, PC+B+P•K =
+ wL + i(B + PK), households can use their income to:

a.

purchase consumption goods.

b.

hire more workers.

c.

acquire more
money.

d.

all of the above.

37.

According to the household nominal budget constraint, , households can
use their income to:

a.

acquire more money.

b.

acquire more bonds.

c.

pay more
wages.

d.

all of the above.

38.

According to the household nominal budget constraint, , households can
use their income to:

a.

hire more workers.

b.

acquire more money.

c.

purchase capital
goods.

d.

all of the above.

39.

If a household this week produces 20 of its product at a cost of 50 cents each,
sells them for $1, works 40 hours at $10 per hour, must pay $10 in interest owed on its borrowing and
rents out 10 units of capital at $100 for the week, the household’s, nominal income is:

a.

$1,440 this week.

b.

$1,400 this week.

c.

$1,420 this
week.

d.

none of the above.

40.

The household real budget constraint .shows that in our model:

a.

households get income only from labor.

b.

households can spend their income on
consumption or acquiring more capital and bonds.

c.

households can spend their income only on
consumption.

d.

households view bonds as riskier than capital.

41.

The household’s budget constraint shows that:

a.

sources of fund = uses of funds.

b.

profits are the largest part of
income

c.

labor income is the largest part of income.

d.

consumption is the
largest part of spending.

42.

The household real budget constraint .shows that in our model:

a.

households get income only from labor.

b.

households can spend their income only on
consumption.

c.

households get income from profits from production, labor and interest on bonds and
capital.

d.

households view bonds as riskier than capital.

43.

To maximize profit a firm should hire labor:

a.

until it can produce no more of its product.

b.

until the marginal
product of labor begins to fall.

c.

until the marginal product of labor equal the
real wage rate.

d.

until the marginal product of labor is zero.

44.

An investment in the Barro model is:

a.

the purchase of a bond.

b.

the purchase of ownership in a
firm.

c.

the purchase of a capital good used for production.

d.

all of the
above.

45.

To maximize profit a firm should hire capital:

a.

until it can produce no more of its product.

b.

until the marginal
product of labor begins to fall.

c.

until the marginal product of capital equal the
real rental price of capital.

d.

until the marginal product of capital is
zero.

46.

In the market for capital services:

a.

the supply of capital adjusts to create market clearing.

b.

the real rental
price of capital adjusts to create market clearing.

c.

the demand for capital adjusts to create market
clearing.

d.

all of the above.

47.

In the market clearing model, depreciation, , is:

a.

the rate at which capital disappears.

b.

the rate at which money loses
value.

c.

the rate at which bonds lose value.

d.

all of the
above.

48.

In the market clearing model:

a.

households can owe pay interest.

b.

households can earn
interest.

c.

for the whole economy interest income is zero.

d.

all of the
above.

49.

In the market clearing model, nominal saving is:

a.

the change in money + the change in bonds + the change in the nominal value of
capital.

b.

nominal income less nominal consumption.

c.

.

d.

all of the above.

50.

In the market clearing model, nominal saving is:

a.

the change in money + the change in bonds.

b.

nominal income plus
nominal consumption.

c.

.

d.

all of the
above.

51.

In the market clearing model, nominal saving is:

a.

always zero.

b.

nominal income less nominal
consumption.

c.

nominal income - depreciation of capital.

d.

all of the
above.

52.

In the market clearing model, nominal saving is:

a.

the change in money + the change in bonds + the change in the nominal value of
capital.

b.

nominal income plus nominal saving.

c.

always zero.

d.

all of the
above.

53.

Real saving is:

a.

.

b.

output plus consumption.

c.

.

d.

all of the above.

Figure6.1

54.

In Figure 6.1 an increase in real income is shown by:

a.

a shift of the curve up and to the right.

b.

rotating the curve
out the real consumption axis.

c.

a shift of the curve inward and to the
left.

d.

rotating the curve up the real saving axis.

55.

In the market clearing model, the demand for capital and labor come from:

a.

the tastes of people.

b.

rental and labor markets.

c.

the objective of
profit maximizing.

d.

all of the
above.

Short Answer

56.

How is profit calculated in the model?

57.

What is the household real budget constraint and what does it tell us?

58.

In the model why does the return on bonds, i, equal the return on capital, (R/P)
- ?

59.

What is real profit in the Barro model?

60.

What causes the labor and capital markets to clear in the Barro model?